JasonC

Citigroup: The End Draws Near

I spent the day analyzing Citi's financial statements looking for what they were doing wrong. They aren't doing things wrong. The present sell off is irrational and unjustified.

Their loan loss reserve is bigger than the share price. Their operating cash flow is positive $45 billion per *quarter*. All of the recent losses are purely non-cash, due to filling up their loss reserves and marking to market assets declining in price but paying higher rates on their lower prices.

Their cost of funds is 3% and they have pushed out the average maturity of their debt to 7 years. They can get through the next year without selling a single dollar of debt. They are earning over 6% on their book, for an interest margin over 3% - and their funding costs are falling, not rising. Yes, distress in the aftermarket has sent their bond yields to 10%, but the Fed has sent their short funding costs in the other direction and it is a bigger portion, since they don't have to refinance debts at the higher rates.

Frankly, they could instead restore the magical tangible book everyone worries about by buying in their own debts at 75 cents on the dollar, out of free cash. Or their stock, come to that. All of it, in about 6 weeks.

When a company could take itself private without exterior financing and fairly be worth 11 figures after doing so, Mr. Market's brains have left the building.